A former Facebook executive detailed the failure of the company's stablecoin and blockchain project Diem (formerly known as Libra), which ultimately led many team members to turn to other blockchain projects.
According to David Marcus, former head of Diem and former board member of Coinbase, the underlying political conspiracy was the project's downfall, which he called a "100% political strangulation" in a lengthy post on X.
"The government or regulatory agencies no longer have any legal or regulatory means to terminate the project. This is 100% a political strangulation—executed by intimidating banks that are subject to government control."
According to Marcus, despite "...working and modifying non-stop for two years to appease legislators and regulators," and receiving limited support from some members of the Federal Reserve, including Chairman Jerome Powell, the Diem project still faced strong opposition on the political front from Treasury Secretary Janet Yellen, who reportedly warned Powell during a biweekly meeting that allowing the project to continue would amount to "political suicide," and she would not support him politically.
Marcus stated that although he is skeptical of the rumors, he still believes that Yellen's opposition was the fatal blow that led to the failure of the Diem project, "...this was actually the moment Libra was strangled."
Marcus then stated: "Shortly after that, the Federal Reserve organized a conference call with all participating banks. The Federal Reserve's General Counsel read a prepared statement to each bank, saying: ‘We cannot stop you from proceeding and launching, but we are uncomfortable with you doing so.’ And that was it; everything ended there."
How Libra Was Killed. I never shared this publicly before, but since @pmarca opened the floodgates on @joerogan’s pod, it feels appropriate to shed more light on this. As a reminder, Libra (then Diem) was an advanced, high-performance, payments-centric blockchain paired with a…
— David Marcus (@davidmarcus) November 30, 2024
In January 2022, the Diem Association sold its intellectual property and assets related to the payment network to the now-defunct crypto-friendly bank Silvergate, which abandoned the project a year later and wrote off its related investments as losses. (Politico) At the time, reports indicated that Facebook's business model (i.e., the prospect that the company would control a significant portion of the financial system) raised significant concerns among regulators.
The regulatory report on stablecoin published in November 2021 by the Financial Markets Working Group led by the U.S. President noted: "The combination of stablecoin issuers or wallet providers with commercial companies may lead to excessive concentration of economic power."
Many members of the former Diem team later joined Aptos and Sui, two Layer 1 blockchains built using the programming language Move, originally developed by Facebook for its stablecoin project. David Marcus is now leading his own cryptocurrency startup, Lightspark, which aims to expand the capabilities of the Bitcoin Lightning Network.
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